On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) became law. In addition to providing relief to various industries and businesses, the $2 trillion stimulus package placed several temporary moratoriums, prohibitions, and limitations of the rights of lenders and servicers of federally-backed loans. These include moratoriums on foreclosures and evictions, instituted mandatory forbearance obligations, and significantly relaxed loan modification requirements. These mandates may create a variety of litigation risks for distressed and delinquent loans. This Alert provides a brief outline of the obligations created by the CARES Act, identifies some potential litigation concerns, and discusses certain considerations for minimizing risk of exposure.

Includes initiating “any foreclosure process,” which appears to include all stages of judicial and non-judicial foreclosures or post-foreclosure evictions

Forbearance Mandate

For single-family borrowers, 180 days immediately, plus additional 180 days upon request of borrower

Forbearance available regardless of delinquency status

For multi-family borrowers, 30 days immediately, plus right to two additional 30-day extensions

Forbearance only available if borrower current as of February 1, 2020

Servicers have an affirmative obligation to provide notice of forbearance right to borrowers

Additional Eviction Moratorium

120-day moratorium on evictions for federally-backed properties

Applies to all property insured, guaranteed, supplemented, protected, or assisted in any way by HUD, FHA, VA, Dept of Ag, Fannie Mae/Freddie Mac, or under USDA Rural Development Voucher Demonstration Program, Violence Against Women Act of 1994

Loan Mods

Loan mods may be made for COVID-19 hardship without categorization as “troubled debt restructuring” until the earlier of 60 days after expiration of national emergency order or December 31, 2020

State Regulations and Private Loan Guidelines This Alert only discusses NY and CA guidelines as examples of additional state action related to the COVID-19 pandemic. Lenders and servicers may wish to be diligent in reviewing any state-issued COVID-19 mandates, prohibitions, regulations, and guidelines for any state where they service debts.

New York

Governor Cuomo issued Executive Order 202.9, which mandated that any bank subject to DFS to grant 90-day forbearances.

The New York Department of Financial Services (NYDFS) issued regulations regarding application of executive order

Does not apply to New York-licensed branches of agencies of foreign banks

Only applies to residential mortgages

Although NYDFS guidance encourages not charging interest or providing negative credit reporting during forbearance period, there are no explicit prohibitions

California

Governor Newsom issued an executive order authorizing local governments to impose limits of residential and commercial foreclosures and evictions resulting from COVID-19 hardship

90-day mortgage forbearances, with no interest or fees during forbearance period and no negative credit reporting

60-day moratorium on initiating foreclosure sales or evictions

Potential Litigation Pitfalls

The broad scope and application of the CARES Act creates a variety of potential litigation risks. Though each case should be evaluated on an individual basis, these are some issues lenders and servicers should be aware of with pending matters:

Ongoing foreclosures

There is no exception in the law for ongoing foreclosures

Scope of application

Not limited to just FHA loans, includes loans owned OR securitized by Fannie Mae or Freddie Mac

Prohibition on charging penalties, interest, fees, etc. during forbearance period